CHICAGO – Weak results in the current fiscal year prompted one rating agency to shift its outlook on Michigan-based Trinity Health Credit Group to negative ahead of Tuesday's scheduled pricing of $568 million of new-money and refunding bonds.
Fitch shifted its outlook down from stable on its AA long-term rating and top short-term rating. The action affects $4.5 billion of bonds, $1.2 billion of variable rate debt, and the system's $600 million of commercial paper program supported by self-liquidity.
"The outlook revision to negative reflects Fitch's concern about the sharp decline in profitability through the five month interim period ended Nov. 30," Fitch said. "Management attributes the compression in margin to increased labor and supply costs due to higher patient volumes combined with a slight erosion in payor and service line mix."
Bank of America Merrill Lynch and Goldman Sachs are senior managers on the Jan. 12 sale. The deal is broken into various series being issued through the Michigan Finance Authority, the Idaho Health Facilities Authority, Montgomery County, Maryland, and the Connecticut Health and Educational Facilities Authority – issuers based in states that serve as homes to various Trinity facilities.
Melio & Co. is advising the system.
The system also is privately placing about $320 million of debt. Proceeds from the public offering and private placement are a mix of refunding and new money.
Standard & Poor's rates Trinity AA-minus with a stable outlook.
Trinity's strengths include its national footprint with 88 inpatient facilities in 21 states and $14.3 billion in revenues, a stable balance sheet with strong operational liquidity equal to approximately 213 days' cash on hand, and consistent financial performance that has generated sound 5.1 times debt service coverage. The system has cash and investments totaling about $7.6 billion.
Trinity's weaknesses include challenged operating results for the start of fiscal 2016, projected capital expenditures of about $1 billion in both fiscal 2016 and 2017 which could limit liquidity growth, and the need for further strides in achieving post-merger cost savings.
Trinity Health Credit Group was the result of the May 2013 merger of Trinity Health and Catholic Health East.
Moody's Investors Service affirmed its Aa3 rating and stable outlook that reflects "Trinity's presence as one of the largest not-for-profit healthcare systems in the U.S., enabling cash flow diversification across several states."
